Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Alan Bell who wrote (4822)	5/3/1998 7:46:00 PM
From: MrGreenJeans	Read Replies (3) \| Respond to of 42834

Alan Bell Why is the monetary growth currently so high? The monetary base is made up of what is called M1, M2, M3, and L. A good explanation, one of many, of why the monetary growth especially in M3 has risen rapidly in recent years is provided by Gene Epstein in this week's Barron's. It was also addressed in last week's edition of Barron's as well. How would a high monetary growth cause inflation? Monetarist economists, such as Milton Friedman, would suggest that when too much money chases too few goods prices rise rapidly and inflation results. Does the fed affect this by changing liquidity and can they affect this without affecting interest rates? The federal reserve is in charge of price stability in this country and directly effects the levels of M1, M2, M3 and L through monetary policy. A change in monetary policy effects interest rates. There is no way the federal reserve can change liquidity, buying and selling bonds, without effecting interest rates. Generally speaking, an increase in the money supply decreases rates and a decrease in the money supply increases rates. Does it make sense to compare the monetary growth to GDP growth? Absolutely, many monetary economists believe there is a direct effect between monetary growth and GDP growth. The authoritative work on this subject is by Milton Friedman and Anna Schwartz in a book they published in 1963. There is a great deal of important information on how the Federal Reserve Bank functions at bog.frb.fed.us I highly recommend this site to all interested in economics and investing. For an overview of fiscal and monetary policy in relatively simple terms there is no better book written on the subject than Paul Samuelson's Economics.

To: Alan Bell who wrote (4822)	5/3/1998 11:07:00 PM
From: stock bull	Respond to of 42834

Allen, I will take a stab at answering your questions. However, I'm no expert in this area, and I did not hear Bob's show this weekend. Having said this, here's my best guess: <<Why is the monetary growth currently so high?>> I think this is tied into asset inflation. For example, if stock are trading above reasonable norms, the excess value of these stocks contributes to the monetary growth. That is, investors who own the stocks can sell and convert the asset into cash. <<How would a high monetary growth cause inflation?>> Given my previous comment, the cash, if spent could contribute to inflation. This is more money chasing fewer goods and services. <<Does the fed affect this by changing liquidity and can they affect this without affecting interest rates?>> I believe the Fed can influence this effect is by increasing interest rates. Higher rates will slow spending and therefore, inflation. <<Does it make sense to compare the monetary growth to GDP growth?>> Not sure how to answer this question. However, I would think that monetary growth results in increasing spending which than affects the GDP. Hope this makes sense. Stock Bull